JOSEPH SCROFANI JD - COMPLETE GUIDE TO BUYING A HOME

COMPLETE GUIDE TO BUYING A HOME

JOSEPH SCROFANI JD

Table Of Contents

How Real Estate Agents Help Home Buyers

Owning vs. Renting

Buyers' Needs and Wants

Real Estate Horror Stories To Learn From 34

Searching for the Right Home

Buying a House: Negotiation Dos and Don'ts 48

What to Know About Home Inspections

Shopping for a Home Loan

Programs For Home Buyers

10. The Closing Process

11. Organizing Your Move

Foreword If you’ve received this book, it’s probably because you’re considering buying a home. And if you’re like most home buyers, you may be nervous about the entire process. But that’s why I’m here! My job is to make your job as a buyer as easy and seamless as possible. Throughout my years of experience in the real estate industry, I’ve amassed insider knowledge to help home buyers get great deals on their home purchases. And now, you’ve got all of that information at your fingertips. In this book, you’ll find: An overview of the buying process How to determine your wants vs. needs in your next home Information on securing a home loan Common mistakes to avoid A negotiation guide to save money on your purchase And much, much more Sure, you can try to employ these strategies yourself, but you should know that an agent focused on SERVING buyers’ needs can make a huge difference in finding your dream home. Yes, buying a home can be stressful, but with this book (and my help!), we can make the process as seamless as possible. If, after reading through it, you want to hire me to help you buy a home, I’d be more than happy to meet with you to discuss a specific plan to sell your home. Happy reading! Joseph (Joe) Scrofani /JD Coldwell Banker Premier 702-882-4949 JoeScrofani4949@g i4949@gmail.com Website:jscrofani.realtor v

About Joseph (Joe) Scrofani JD When I'm not busy serving my client's needs, you can find me with my wife and grandkids, playing golf and teaching real estate. Golf is how I unwind after a long week or weekend working hard for my clients — and that’s not just a cop-out. I have dedicated my life in real estate to helping my clients achieve their real estate goals. I was raised in Southern California with two siblings. From a young age, I was taught that if you want something in life, you must work for it. So that’s what I did. And I worked hard. (But that’s not to say I didn’t have fun along the way.) I entered the real estate industry in 1978 after Several years in the corporate world. My dad, my hero, was a real estate broker in Southern California and convinced me to get into real estate. So, I did, and I do not regret my decision. After three years into my real estate career, I enrolled in Law School, earning a Juris Doctorate Degree in Law. I enlisted in the US Army and served four years of active duty and seven years in the US Army Reserves. After my training at Officer Candidate School, I served as a platoon leader at Fort Ord, CA. I was then deployed to Korea, where I served thirteen months. After my four years of active duty, I fulfilled my commitment as a Company Commander in the US Army Reserves. I currently live in Las Vegas, Nevada, with my wife. I have two wonderful children, a beautiful daughter, an awesome son, and two grandchildren.

EXPERIENCE* SERVICE* RESULTS

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About Joseph (Joe) Scrofani JD

Throughout my career, I have earned numerous accolades, including: REAL ESTATE EXPERIENCE: Broker Salesperson with 45+ years in Real Estate Licensed Real Estate Broker Salesperson in Nevada Licensed Real Estate Broker in California. Specializing in Residential Real Estate, Seniors, Land, and Commercial DESIGNATIONS: Emeritus Status with National Association of REALTORS®

Seniors Real Estate Specialist® (SRES®) Certified Real Estate Negotiator (CREN*) r (CREN*) Certified Real Estate Instructor (CREI*) r (CREI*) DEGREES EARNED: Bachelor of Science. Juris Doctorate Degree in Law. US ARMED FORCES: United States Army Officer Veteran.

Joseph (Joe) Scrofani /JD Coldwell Banker Premier 702.882.4949 JoeScrofani4949@g i4949@gmail.com Website: jscrofani.realtor NV RE License: BS 17796 e: BS 17796 CA RE License: B 613250 e: B 613250

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CHAPTER 1 How Real Estat eal Estate Agents e Agents Help Home Buyers At the start, I’ll come right out and tell you I’m a real estate agent — proudly so! Nice to meet you! I’m not trying to sell you anything, but I’m pleased to be of service. I’m giving you the benefits of experience and advice I have gleaned throughout my career selling houses and being in real estate transactions — for both sellers and buyers. We can talk if you want me to help you find a house. Call me if you need me. Technology has changed the way homes are sought and bought today. In this “Information Era,” most buyers are first introduced to the home they eventually purchase via the internet, through Zillow, Trulia, Yahoo! Homes, Realtor.com, Redfin, or one of hundreds of other real estate websites. So that means there’s no need for a buyer’s real estate agent, right? Using a real estate agent is to find a home and show homes available for sale, right? If a buyer can find and visit a home on the web independently, why involve another party?

WHY HOME BUYERS NEED A REAL ES UYERS NEED A REAL ESTATE AGENT

Ah, not so fast, friend. The reasons to use a real estate agent today are as valid as yesterday. The ease of online transactions and the proliferation of services to assist buyers in handling their real estate transactions have come about recently throughout the last decade. This has caused buyers to wonder if 2

using a real estate agent is no longer necessary or an expense that can be avoided. Doing the work yourself can save you money if you buy a “For Sale By Owner” (FSBO) house and the seller agrees to reduce the price what they would pay if they listed their home with an agent; for many, a do-it-yourself home purchase might be pricier than a real estate agent’s commission in the long run. In most home sales, there is a listing agent (the agent the seller engages to sell the property) and a selling agent (the agent who introduces the eventual buyer to the transaction). The selling agent is sometimes called the “buyer’s agent” because he or she is often working on a specific buyer’s behalf, and it’s easier than explaining that the selling agent is not the listing agent but the buyer’s agent. Some real estate agents market themselves as “buyer’s agents,” “exclusive buyer’s agents,” or “buyer’s representatives.” These agents have chosen to make a business of finding homes for prospective buyers and handling the negotiations and transactions attendant to the purchase. These agents want to accentuate why buyers shouldn’t go directly to the listing agent when they purchase real estate. A buyer who goes directly to the listing agent and allows that agent to “manage” both sides of the transaction deals with an agent with conflicting responsibilities. Their job is to get a reasonable price for the seller, and they might not zealously represent the buyer's interests. Those who market themselves as buyer’s agents indicate they only work for the buyer in a real estate transaction. The seller traditionally paid the buyer’s agent's commission. They were either paid directly by the seller, or the transaction was set up so that the seller provides a “credit” to the buyer for how much the real estate commission is, and then the buyer

pays the commission. However, evolving regulations mean buyers may pay their agents directly, and the traditional practice of commission splits may evolve alongside other compensation structures. The intricacies of changing regulations are just one of the many reasons buyers can benefit from having an agent dedicated to their interests alone.

MORE ACCESS TO THE REAL ES O THE REAL ESTATE MARKE TE MARKET

A real estate agent will have better access to the market and a unique knowledge of local conditions. The agent is a full-time liaison between sellers and buyers. An agent will have ready access to other properties listed by other agents. Buyers’ and sellers’ agents know how to negotiate a real estate deal. A real estate agent will track down homes that meet your criteria, contact sellers’ agents, and secure appointments for viewing the homes. Buyers, on their own, have a more difficult time with these things. This is even more so when a buyer moves due to relocation or employment opportunities and does not engage a buyer’s agent to handle matters.

NEGOTIATING IS HARDER ON YOUR OWN

A real estate agent will keep the transaction “at arm’s length” so personalities and emotions do not become involved. Price negotiations require special skills and an understanding of the psychology of offering and counter-offering. Agents keep the transaction dispassionate and rational. For example, a buyer (you) might like a home but despise its wood- paneled walls, shag carpet, and lurid orange kitchen. When you work with an agent, you can express your opinions on the current owner’s decorating skills and complain about how much it will cost to upgrade the home without insulting the owner.

Your agent will translate that to the seller — that you like the property but can see having to spend a certain amount on decorating costs and thus can offer much less.

CONTRACTUALLY SPEAKING…

Many contracts and documents are involved in purchasing a house, and the stack is more than an inch thick. Unless you’re a real estate lawyer or title agent, these documents will be foreign to you. Yet, they require detailed and accurate completions. Buying a property is not necessarily a “fill-in-the- blanks” transaction. One mistake, let’s say, in title work could haunt the buyer well down the line after purchase. This very situation happened. A property that sat on a double lot was put on the market. The neighbor bought it to remove a bit of the second lot to expand his yard. The seller then returned the home to the market, and it sold. Months later, through a property tax notification, it came out that, in preparing new deeds for the properties, the expanded yard area was correctly in the neighbor's name; however, the house had been transferred to the home buyer. The new homeowner now owned both houses, and the neighbor owned his expanded driveway and yard. Fortunately, they were good neighbors and settled the matter with a few signatures. A real estate agent deals regularly with these contracts, conditions, and unexpected situations and is familiar with which conditions should be used, when they can safely be removed, and how to use the contract to protect you.

YOU WON'T NECESSARIL N'T NECESSARILY SAVE MONEY

The point of not using a real estate agent would be to save money. Otherwise, why would someone turn down professional assistance in finding a home? However, it’s unlikely that both the buyer and the seller will reap the benefits of not paying real estate agent commissions. It works like this: An owner selling on his own (FSBO) will price the house based on the sale prices of comparable properties in the area. Many of these properties will be sold with the help of an agent; therefore, the seller profits in keeping the percentage of the home’s sale price that might otherwise be paid to the real estate agent. Buyers looking to purchase a home sold by an owner without an agent may believe they can save money on the home by not having an agent involved, so they look solely at FSBO houses. They might expect money to be saved and make an offer accordingly. Unless the buyer and seller agree to split the savings, they can’t both save that money—if the listing price was not already lowered to make it more market-attractive. Here’s a short list of the advantages that using a real estate agent can bring to your buying experience:

Negotiation skills and confidentiality Education and experience Neighborhood knowledge Price guidance Market conditions information The ability to handle paperwork The ability to handle closing questions Relationships for Future Business

It’s essential to know the “ins and outs” of real estate agents before you hire one to help in your search for a home, so that

you know what to expect and what will be expected of you.

WHO A REAL ESTATE AGENT IS GENT IS

Simply put, a real estate agent is licensed to list and sell real estate, including homes, multi-family properties, and commercial and industrial buildings. A Realtor®, however, is somewhat different. A Realtor® is a member of the National Association of Realtors®. While an agent is always a real estate agent, a real estate agent isn’t always a Realtor®. As mentioned, real estate agents who work on behalf of the best interests of the buyer are commonly called buyer’s agents. All listing agents represent the seller, but other agents who don’t have buyer-agency agreements with prospective buyers — even though they may show homes to those buyers — are working on behalf of the seller and must obtain the best price they can for the seller. In contrast, buyer's agents traditionally work on commission, as outlined in the listing agreement. However, evolving regulations now allow for more varied compensation structures. When a buyer's agent represents a buyer, the commission structure may involve a split with the listing agent, direct payment from the buyer, or other negotiated arrangements.

HOW TO CHOOSE THE BEST AGENT FOR YOUR NEEDS UR NEEDS

You might be urged to pick the first real estate agent who appeals to or approaches you, but that’s something to avoid. As with any professional, there are degrees of professionalism, dedication, and experience. The “wow factor” will wear off. Meet with prospective buyer's agents in their offices. A good buyer’s agent will want to know whether you’re preapproved for a loan by a lender, what kind, and the loan terms you’re getting.

They should spend adequate time discovering what you’re looking for in a house. They should listen as much as talk and ask questions. Watch to see if the agent makes notes. If the agent doesn’t broach the topic, ask for an explanation of his understanding of agency relationships and obligations to you. The law requires agents to explain whether they’ll work for the buyer or the seller whenever they have substantive contact with a customer or prospective client. If the agent doesn’t offer you a buyer’s agency agreement, that agent represents the seller, not you. If the agent can’t explain agency concepts to you, move to the next agent. Be sure that the agent will show you all listings or properties on the market that meet your requirements, not only those handled in-house. Buyer’s agents have the legal duty to put the buyer’s needs ahead of their own. Even when an agent will be paid more for selling an in-house listing, they must inform you about other available, suitable listings and take you to see viable prospects. A good buyer’s agent will provide a home-buying education. While the listing agent will point out a home's features, a good buyer’s agent will point out the faults—or advise when they can be overlooked. Competent buyer’s agents help buyers think clearly as the home- buying process unfolds. For example, if a house is a good buy, a buyer’s agent might suggest looking past the dated bathroom and kitchen and looking at the space above the garage that will make the perfect art studio you desire. Likewise, a cute house with all the amenities but with knob-and-tube wiring or a 40-year-old roof might not be worth the asking price. According to the San Francisco Chronicle’s Home Guide, if you decide to buy to build an addition, the agent should advise you to check the zoning before making an offer.

Agree to sign a buyer’s agency agreement after you have met with an agent, and discuss the terms for payment, whether that's a negotiated commission structure or a direct payment from the buyer to the buyer's agent. Some people sign an agency agreemen t after attending a s howing the agent gives. According to an article by Amy Fontinelle of Forbes’ Investopedia, working with a seller's agent is a mistake. Any information you reveal will become leverage the seller can use in a purchase negotiation. A buyer’s agent must legally maintain your confidentiality, disclose material facts to you, including the potential for direct compensation, and maintain your loyalty.

LOOK FOR PROPER CREDENTIALS

You wouldn’t trust a doctor who didn't have the proper credentials and licensing. Don’t trust a real estate agent who doesn’t present theirs or doesn’t have them at all. It’s easy to find real estate agents who can take the job, but finding agents with exceptional credentials — those who have gone that extra step to take additional classes in certain specialties of real estate sales — is worth looking into. Here are just a few credentials within real estate that you should be on the lookout for: Certified Real Estate Negotiator (CREN*): r (CREN*):Completed additional training and classroom education in Negotiations. Certified Residential Specialist (CRS): t (CRS):Completed additional training to handle residential real estate, such as houses and apartments. Seniors Real Estate Specialist (SRES): RES):Completed training and classroom education to help sellers and buyers 50+ years old. Similarly, if you choose to use a real estate agent who’s also a member of the National Association of Realtors®, it will be a bonus. However, ensure they have credentials relevant to your

need(s).

RESEARCH LICENSING

Your state will have a license board for all active Realtors® and agents, which you can easily access. You will also be able to see their contact information, disciplinary actions, complaints, or any other information you’ll need to help influence your decision — especially since most information is now posted online.

RESEARCH THEIR BUSINESS ACTIVITY

Learning the type of market presence a real estate agent has is the best way to figure them out. Ideally, you will want an agent specializing in one or two real estate markets and understanding which homes and amenities are available within your price range. You can unearth this information by asking them or the state licensing authority if you’re uncomfortable with asking the agent directly. You’re better off with an agent actively engaged in one area and price range—e.g., residential homes around the $350,000 to $450,000 range or the $450,000 and up range.

GOING THE BUYER'S AGENT ROUTE

So, you’re ready to take the plunge and look for a place to call “home.” To get the most out of it, use a buyer’s agent to avoid paperwork, stampedes of buyers competing for the same property, and other challenges. Home buying can be exciting but also complex and stressful — so having a pro by your side can make an enormous difference. As discussed, you’ve probably heard of buyer’s agents, seller’s agents, listing agents, and so on. You’re a buyer, so what’s a

buyer’s agent? True to the name, buyer’s agents assist home buyers every step of the way; they can also save you both time and money on the road to homeownership. When you find the right one for you, these real estate agents will work day and night to ensure all your needs and requirements are met when it comes to finding the right home.

WHAT BUYER'S AGENTS DO FOR YOU

Your buyer’s agent will have a vast knowledge of the area's current real estate market, including neighborhood amenities and conditions, the law, zoning issues, price trends, negotiations, taxes, financing, and insurance. Once you meet with the buyer’s agent, they’ll help you determine your needs and wants when finding a home and a neighborhood. The agent will teach you what you can afford, help you set a budget, provide some insight into the current conditions of the market, and explain what you should expect while shopping for a home. During the shopping period, you’ll meet with your agent for tours of homes you might be interested in. They will give you insight into the floor plans, the home’s pertinent selling points, and the overall crime rate of that neighborhood. They will also give you a rundown of local activities, restaurants, shopping centers, and schools nearby. Your agent is responsible for ensuring home inspections and the disclosures therein are complete. They’re also in charge of ensuring coordination and completion through the roof inspector, attorneys, lenders, and all other professionals involved with the home purchase.

If bargains are needed over the price, you won’t have to negotiate. Your buyer’s agent will do that for you and sign the final closing documents. They will be present whenever there are documents to go through and sign.

DUAL AGENCY: THE BASICS

A “dual agency” relationship occurs when a buyer is represented by a brokerage firm controlling the listing. Once an agent represents the seller and the buyer within the same transaction, the situation is known as “dual agency.” In multiple states, this is illegal because of the conflicts of interest that can arise regarding the broker. All agents are responsible for informing their clients of all potential risks that could arise due to conflicts of interest. Legally, agents are not allowed to work on both sides of any transaction without the clients' consent. If you’re selling your home and don’t want your agent to work with the buyer, it’s your right to say so in the listing agreement. The same is true for buyers. A buyer can opt out of a deal with an agent if they want to purchase a home their agent is listing. Regarding dual agency, there are definite advantages for the seller. Trust has already been gained with your listing agent, so we have established representation for the buyer. Your agent brought you the buyer knowing you’re selling, even if your property has not yet hit the market. Your listing agent will have already covered and researched your neighborhood’s market to generate buyer inquiries. This means your agent will be working from all sides of the deal to sell your house faster and with more incentive. Your agent works with corporate relocation buyers who need to

find a house quickly, and they will ensure that your home is bought. There are also cons for the seller when it comes to dual agency, and they are: Your agent can’t advise you as thoroughly when they must act as a dual agent because impartial facilitation is required. Your listing agent cannot negotiate the best or highest price for you if you are dealing with the best and lowest terms for the buyer. If the opportunity arises, earning a full commission may tempt the agent to coerce you into accepting a deal you might not accept otherwise. Your agent may inhibit all access to your listing through buyers with agents. To avoid surprises or missteps in a dual agency sale, please clarify essential details with your agent beforehand. You can do this using an exclusive buyer-broker agreement.

HOW REAL ESTATE AGENTS ARE PAID

The National Association of Realtors® Profile of Home Buyers and Sellers states that approximately 10% of homeowners opted to sell their homes without using a real estate agent or Realtor®. A handful of For Sale By Owner (FSBO) transactions dealt with sellers and buyers who previously knew each other or were directly related; Real estate agents and Realtors® — unlike professionals in different categories who bill by hourly rates or earn a salary — get paid through a transaction (commission) at the end of each sale.

For example, if an agent has worked with a seller or a buyer for months, they don’t get paid for the time spent if there is no transaction during that period. Agents receive a commission once the transaction goes through to settlement (closes) based on the home's selling price. At that point, the commission is earned. Traditionally negotiated between the seller and agent, the commission structure typically amounts between 4.5% to 6% of the sale price. New regulations may influence these negotiations, and some brokerages offer commission discounts to sellers. Historically, the listing agent and the buyer’s agent split the commission, but this practice may evolve due to recent regulatory changes. Issues can arise. For example, sometimes, the split might not be negotiated evenly. A seller could have agreed to pay a commission of 5.5%, which, if further divided, would mean that the buyer’s agent would receive 2.5% while the listing agent would receive 3%. Even though some agents are associate brokers or brokers in general, all commission payments have traditionally gone through to the broker managing the brokerage where the agent is working. From there, the commission is then split to the agent and the broker, according to the agreement that’s been made. The split will vary; sometimes, newer agents earn a small portion of the commission compared to the experienced or successful agents who generally sell more expensive properties or homes.

PAYING THE COMMISSION ITSELF

The Buyer Broker Agreement

Agents working with buyers enter into written agreements with

those buyers before touring a home, either in person or virtually. That agreement must specifically disclose the amount or rate of compensation an agent or broker will receive or how this amount will be determined. The amount must be objectively ascertainable and must not be open-ended. For instance, $X or X% is permissible, but a range of commissions is not because it is too vague. The types of compensation available for brokers working with buyers would continue to take multiple forms. This includes but isn’t limited to: A fixed-fee commission paid directly by buyers Concessions from the seller A portion of the listing broker’s compensation

Offers of Compensation

Offers of compensation, or the ability of listing agents to compensate agents representing buyers for the value they bring to the transaction, are still an option under the practice changes. Offers of compensation benefit both buyers and sellers. For buyers, they promote access to representation throughout the home-buying process, which will help consumers achieve the dream of homeownership on terms that work best for them. For sellers, it helps to broaden the pool of prospective buyers by lowering the barrier to entry for those who may not be able to afford to pay buyer-agent compensation out of pocket. This is particularly important for lower- and middle-income buyers who have challenges saving for a down payment, and it enables REALTORS® to be compensated fairly for the value they provide. Suppose there is an offer of compensation from the listing broker to the buyer broker. In that case, the agreement can be memorialized within a broker-to-broker agreement before the buyer broker and buyer tour a home.

It’s important to remember that buyer brokers cannot accept compensation from any source that is more than the amount agreed to between the buyer broker and buyer. Seller Concessions Seller concessions can help the buyer cover certain transaction costs, including fees for buyer broker services. Other uses may include loan origination costs or property repairs. Seller concessions can still be communicated on an MLS. However, such concessions cannot be conditioned upon or tied to payment to a buyer broker. What Is A Buyer Agency Agreement? A buyer agency agreement sometimes called a buyer representation agreement or a buyer-broker agreement, is a contract between a home buyer and a real estate agent outlining the terms and conditions of their working partnership. The agent could also be a REALTOR® (a real estate professional member of the National Association of REALTORS®) or a broker. How Does A Buyer Agency Agreement Work? Upon signing the contract, the home buyer agrees to work with the real estate agent until they purchase a property the agent proposes or the contract expires. If a real estate transaction occurs, the agent receives a commission based on the home sale price. The buyer, seller, or both pay the commission at closing. A buyer agency agreement provides some transparency for the buyer and the agent, so both parties know exactly what to expect from the other throughout their partnership.

Source National Association of REALTORS® (NAR) 8/24

CHAPTER 2 Owning vs. Renting

Owning your own home might be one of the defining qualities of the “American Dream:” the ideals that include opportunity for prosperity and success and upward social mobility for the family and children, achieved through hard work. Homeownership is surely ingrained as one of the strongest representations of that vision — 66% of Americans own their own home and more hope they will or wish they did. Something about home ownership strikes a strong chord with Americans. Many of us seek financial security, permanency, status, and pride. Lifestyle plays a significant role in the decision to own versus rent. Home buying is most often driven by household formation, such as marriage and growing a family. Less than 40% of people under 35 own homes, 60% of people over 35 own homes, and more than 80% of people 65 or over own homes. Interestingly, for the millennial generation, the primary reason for buying a home is owning a dog. The U.S. homeownership rate has fluctuated between 62% and 70% since the 1950s. Most young people begin their independent lives renting an apartment, maximizing lifestyle flexibility and minimizing the hefty upfront costs of purchasing a home. As they build careers, save money, and start families, many buy a home, recognizing that home ownership, as opposed to rental living, is more appropriate to their growing family needs. At the other end of the age spectrum are homeowners nearing 18

retirement who may desire to sell their homes, downsize, avoid maintenance and other obligations, and return to renting.

WHICH IS BEST?

Is it better to rent or buy a home? Most adults ask themselves this at some point as they form their goals and plan for the years ahead. Before you answer the question, here are some things to ask yourself. Owning and renting each have advantages, but what’s best for you depends on your circumstances. What will be the duration of your stay at home? Each market is different, but whether the time you plan to spend in the house warrants its purchase is possible to predict. Generally, it takes four to seven years to break even on a home (i.e., where there has been enough appreciation to pay back the cost of the transaction and ownership). If you’re considering buying and selling a home in two years, buying is very unlikely to be cheaper than renting. Do you think of or need your house as an investment in your retirement plan? Many Americans see their homes as a valuable asset, often integral to their retirement strategy. Real estate is commonly regarded as a solid long-term investment, frequently favored over other options like stocks, gold, or savings accounts. Its appeal lies in the potential for value appreciation over time. However, it's wise to remember that the real estate market is subject to fluctuations. Various market and economic factors can increase and decrease property values. This reality highlights the importance of considering real estate as one component of a diversified investment portfolio, recognizing both its potential benefits and inherent risks. Are you financially ready? Owning a home is a financial commitment that requires planning how home ownership fits into where your life is headed. Ask yourself your budget and

whether buying or renting would require you to stretch your finances. Crunch all the numbers. A frequent mistake of first- time home buyers is comparing a month’s rent to a month’s mortgage payment. Many people don’t have all the numbers. Many additional fees are necessary to make a fair comparison: principal interest, property taxes, property insurance, homeowners’ association (HOA) fees, and ongoing maintenance. Are you prepared for the down payment? This lump sum payment funds your equity in the property (how much of the property you own). Down payments vary; 20% is preferred and gets the best rates. Some loans allow down payments as low as 3%. Sometimes relatives help with the down payment. If you have a choice, take a gift rather than a loan because lenders will add the loan debt to other monthly obligations and potential mortgage payments to determine your debt-to-income ratio, which generally can’t top 43% to qualify for a home loan. Can you afford the monthly mortgage and its components? Generally, a mortgage includes loan principal and interest (both amortized over the life of the loan) plus homeowner’s insurance and property taxes (prorated). These items can affect the monthly loan-only payment by several hundred dollars. Are you emotionally ready? Can you handle the stress? A significant factor to consider when buying a home is stress. The Holmes and Rahe Stress Scale, a landmark stress study, ranks many events that accompany buying a home in the top 43 most stressful circumstances in life. Four events are specifically home- related: change in financial state (No. 16), large mortgage or loan (No. 20), change in living conditions (No. 28), and change in residence (No. 32). If someone has recently made other life changes, such as marriage (No. 7), switching careers (No. 18), or having a child (No. 14), it might be wise to postpone buying a home. Stress overload can lead to missed payments, destroying

credit, or even losing the home. It’s better to rent if your life is in flux and buy when your stress levels are lower. Are you ready for commitment? Are you ready to make many decisions, from picking a real estate agent to picking paint colors? Are you confident enough to choose a neighborhood where you believe home values will continue to appreciate and that will serve your needs (i.e., proximity to schools, shopping, recreation, etc.)? Are you ready to devote time and attention to maintaining a home (i.e., leaf-raking, grass-cutting, appliance maintenance and repair, etc.)? Taking care of your most significant investment can be gratifying, but only if you’re ready.

ADVANTAGES OF BUYING YOUR HOME

Control over housing expenses. By selecting a fixed-rate 15-, 20-, 25-, or 30-year mortgage, the homeowner has the assurance that housing costs won’t increase over the period and will be eliminated at the end of the term (subject to refinancing). You build equity. Some of each monthly mortgage payment goes toward the loan’s interest. Other portions may go to homeowner’s insurance and county taxes. The remainder pays down the loan principal. Every dollar put toward your loan’s principal represents a dollar of equity — actual property ownership. Further, the property should appreciate each year, adding to equity (what the house could be sold for versus what is owed on it). Discounting specific blip periods, such as the 2006 housing bubble burst, home prices in the U.S. appreciate nationally at an average annual rate between 3% and 5%. Remember that home value appreciation in different metro areas can be appreciated at markedly different rates than the national average. Improvements increase your home’s value. A homeowner can also increase a home’s value through home improvements, thus

making your home more comfortable and enjoyable while growing its loan-to-value (LTV) ratio. For instance, adding a bathroom or finishing a basement substantially increases the property’s functionality and appeal while potentially boosting its value. Tax advantages of home ownership. There are significant tax benefits associated with buying a house, both at the time of purchase and for the duration of time you own the home: Homestead exemption. Many states exempt owner-occupied homes (homesteads) from a portion of the property tax amount that would normally accrue. For instance, Louisiana exempts the first $75,000 of a home’s value from property tax assessments, so a $200,000 home in New Orleans is taxed as if it were worth $125,000. Federal tax deductions. When purchasing a home, it’s important to understand what can be deducted from your tax return and what can’t. Property taxes and interest paid on your mortgage can be deducted if you itemize your federal income taxes, which can reduce your income tax burden. Many home buyers, unfortunately, overlook the effect of mortgage interest on their federal income tax payments. Mortgage interest can be a powerful financial planning tool. Calculate the mortgage interest deductions you are eligible for, and include that in your annual financial planning. Then, check Internal Revenue Service (IRS) Form 1098, which you’ll receive from your lender at the end of the year. This form shows the amount of mortgage interest that you’ve paid. The Tax Cuts and Jobs Act (TCJA) applies from 2018 to 2025 and limits the aggregate deduction for state and local real estate property taxes; state and local personal property taxes; state, and local, and foreign income, war profits, and excess profits taxes; and general sales taxes (if elected) for any tax year, up to $10,000 ($5,000 for marrieds filing separately). This limit does not apply if those taxes are paid or accrued in

carrying on a trade or business or in an activity engaged in for the production of income. In other words, if you are living in your home, you can only claim up to $10,000 in tax deductions on your property, but if you are earning income directly from your home in some way, the limit might be waived. Comparatively lower lending rates on mortgages. Though subject to fluctuation, mortgage rates often remain more favorable than other types of loans. Even in periods of higher rates, mortgages typically offer more competitive interest rates than personal loans or credit cards. This aspect of home financing can make homeownership financially advantageous, providing a more affordable route to building equity than other borrowing options. Ownership rights and creative freedom. Your decorating and home-improvement choices are yours, provided they don’t break building codes or violate homeowners’ association rules. You can paint walls, add fixtures, update or finish your basement, or build a patio or deck. Changing your environment to suit your whims is a freeing aspect of homeownership. A sense of belonging to the community. Homeowners stay in homes longer than renters and are more likely to grow roots. They might join a neighborhood association, volunteer at a nearby community center, join a school group, or align with a business improvement district. Renters might not do any of those things, mainly if they know their lease is up in a year, and they might move. An intangible pleasant feeling is attached to owning your own house — a sense of freedom and independence. Your home belongs to you, and you can do what you want with it. You aren’t daunted about increases in rent or losing the lease. You’re free to make improvements and changes. Also, owning your home gives your children the guarantee of attending the schools in the area more permanently; you never need to worry about a notice from the landlord to vacate your

rented house or apartment for various reasons over which you have no control.

ADVANTAGES OF RENTING

It seems like a shorter list, but one man’s pro is another man’s con, and renting certainly has advantages that factor into your buy-or-rent decision. No responsibility for maintenance. Admittedly, this is a big one. You’re not responsible for home maintenance or repair costs as a renter. If a toilet backs up, a pipe bursts, or an appliance stops working, you don’t have to call an expensive repair person — you call your landlord or superintendent. Renters in condos, townhouses, or apartments don’t have lawn and grounds care obligations. Relocating is easier. When renting, relocating for work is more manageable. Though a sudden move may require you to break your lease, you can partially offset the cost by subletting your apartment or talking with your landlord. On the other hand, selling a home takes time and effort. If you have a short timeline to sell your home, you may be forced to accept a lower price and lose some of your investment. No real estate market exposure. Home values fluctuate and can decline over time. If you’re a renter, that’s not your problem. If you’re an owner trying to sell — it is.

DISADVANTAGES OF OWNING

Maintenance. The renter’s most significant advantage might be the homeowner’s major disadvantage. While insurance might be available to protect against expenses from significant catastrophes, usual maintenance items are on the homeowners’ dime. Maintenance and repair can be as simple as repainting the

baseboards and as extensive and expensive as replacing an HVAC system or sewer pipe. The expense will vary from year to year; however, you can expect to pay about 1% of the value of your home annually toward these expenses. If you live in a $200,000 home for 10 years, that’s $20,000 over the period, and perhaps more if you must replace a costly, long-lived mechanical item, such as a furnace. Remember the usual homeowner’s lawn care chores, snow removal, gutter cleaning, and other regular home maintenance needs. Upfront and closing costs. Buying a home entails numerous upfront costs. Some are paid out-of-pocket after the seller accepts your purchase offer, while others are paid at closing. These include earnest money, down payment (typically ranging from 3.5% for FHA [Federal Housing Administration] loans to more than 20% of the purchase price), home appraisal, home inspection, property taxes, and first year’s homeowner’s insurance. Loss of relocation flexibility. It’s much easier to break a lease and move out of town than to arrange to sell a residence. Selling the home from out of town involves special logistics and financial matters, such as dealing with the mortgage while the home is on the market. Financial loss potential. Homeownership builds equity over time; however, equity doesn’t equate to profit. If home values in your area go down or remain stagnant during your time as a homeowner, the appraised value of your home could decrease, putting you at risk of a financial loss when you sell.

DISADVANTAGES OF RENTING

No equity building. The monthly rent you pay goes to the

landlord. It represents the fee you pay for using the property. No matter how long you live there, you gain no ownership of the property. No tax benefits. While homeowners can deduct property taxes and mortgage interest on their tax returns, renters aren’t eligible for housing-related federal tax credits or deductions. Home improvements go to the landlord. Any structural and decorative home improvements that renters make belong to the building owner and will have to stay behind when you move to a different place. Also, approval for the desired major redecoration will be needed. After all is done, the decision to buy or rent depends on the prospective home buyer’s circumstances. There’s no denying that a home of your own is a sound financial and a significant emotional investment. An investment in a home can also mean an investment in your future. There is much to consider when buying a home. Switching from renting to homeownership is a highly challenging but exciting and amazing decision.

CHAPTER 3 Buyers' Needs and Wants

After you buy a home, your next decision point is what sort of home it will be. It’s better to have a concrete vision of what type, features, and amenities you want in your home rather than taking a “shotgun look” at every listing in your price range. Imagine your dream house. It fulfills both your needs and wants. It fits the need for a good roof over your head, a sturdy structure, modern fixtures and appliances, living space (i.e., bedrooms, living room), and functional rooms (i.e., kitchen, bathroom[s]). Your needs are fulfilled, and you turn to your wants. Perhaps you envision a home on the beach or in the woods, a gourmet kitchen, a wood-paneled den, a crystal chandelier over a banquet table in the manor-sized dining room, or an Olympic-sized swimming pool with a hot tub and sauna. Your priority in any home purchase should be meeting all your needs. Sometimes, you won’t find everything you desire in a home, and if you do, you may not be able to afford it. It’s essential to prioritize the things you want in a house by their importance in your search. Enough that a home without one will not be looked at? In what areas or neighborhoods might the home be located? Where do you want to live? Where might you have to live for work commute or home price reasons? What features would make it unique? 28 Needs vs your Wants . Would you like a swimming pool?

What can you afford, and what is out of your budget?

Budget usually constrains us the most when selecting a home. While some things are necessary for any home (e.g., a good roof and working appliances), others will stay on the list of desires for now (e.g., the sauna).

MAKE A LIST; CHECK IT T ; CHECK IT TWICE

You may have an impression of what you want in your new home. Writing that down and having a complete checklist can be helpful. Before starting your hunt for a new home, it’s advisable to list all your basic needs and desires, then prioritize the desires, figuring that all needs must be met in any house under consideration. This will make the search easier and help weed out the ones that don’t meet the basics. Realize, however, that it’s nearly impossible to find a home that meets all requirements. Compromises will be necessary. It’s a good idea to work from outside-the-house factors to inside-the-house. For example, location is perhaps the primary concern, and both “needs” and “wants” factors might be involved. A “need” would be “within 25 miles of work.” A want might be “would like Summerlin” (a favored neighborhood), while a need might be “on the north side of the city” (because work, family, friends, and recreation activities are all located there). Location needs may include proximity to schools, frequently used recreation facilities or modes of transportation (bus or suburban rail access). Whether an item is a need or a desire depends on circumstance.

Closeness to family might be a need for a couple with young

children or elderly parents to care for—or a want if those factors aren’t involved. Items like these make a checklist very helpful. After compiling location needs and wants, housing factors can be considered. Needs include having all essential house structures and systems in good working order. Accepting a house needing a new roof because the owner is willing to knock $7,000 off the listing price—but it will cost $10,000 to replace the roof in two years—is not a sensible deal. Needs might include a minimum number of bedrooms and bathrooms, no steps, a fenced yard, perhaps a first-floor laundry facility, and any feature the prospective buyers have decided they cannot accept a home without. Wants are features that make the house more attractive or enjoyable — an upgraded kitchen, walk-in closets, and a master bedroom suite. Of course, one buyer’s need is another buyer’s want. The point is to know your own needs and wants so you can quickly assess potential properties and make the process smoother. Regardless, buying a house is not a simple process. Before contacting a real estate agent or looking at homes, much planning should be done. Work out the costs and budget. Choose a general location. Contact lenders well ahead of home shopping so your offers aren’t tied up in getting financial approval. Having the image of your dream home is reality, married with imagination. You may find that some aspects of the house you intend to buy are different. It’s not the same as what your dreams told you. Different people have different requirements. It depends on your thought processes as well as your personality. We understand essential things and potential compromises differently. Needs are basic requirements that just can’t be ignored or compromised. Wants, on the other hand, can be left

behind if the situation demands it. You need to make a clear distinction between what your needs are and which items you would classify as wants. No matter how many unfulfilled wants you have, you can work on them later. For example, you can add a pool or change the paint colors.

A NOTE ABOUT PETS

Please take care of your pets while shopping at home. Home buyers who are pet owners have specific requirements — they must provide for their pets. A third of millennial-aged Americans (born between 1981 and 1996) who purchased their first home (33%) say the desire to have a better space or yard for a dog influenced their decision to purchase the home, according to a survey conducted online by Harris Poll, on behalf of SunTrust Mortgage. Dogs ranked among the top three motivators for first-time home purchasers and were cited by more millennials than marriage/upcoming marriage, 25%, or the birth/expected birth of a child, 19%. The neighborhood where you’re going to buy a house must have no restrictions on pets — or livestock if that’s something you desire. Do you raise American Staffordshire Terriers, also known as pit bulls? Some neighborhoods ban this breed. What about goats? Vietnamese pigs? Have you always wanted fresh eggs from your chickens? Include your animals in location planning. Some pet owners choose wood or other hard flooring, not wanting to risk pet damage or odors. Many pet-owning house buyers list an appropriate-sized fenced backyard on their “needs” list. Consider the arrangement of rooms and the house's structure to ensure it’s suitable for your pets, too. Traffic in the area could be another checklist item.

Pet services like veterinary care, grooming, and exercise should be nearby.

LOCATION, LOCATION, LOCATION!

Please limit your search to a neighborhood that offers the closest possible match to the lifestyle you like and want to live. In addition, based on the 2024 NAR Generational Trends Report, 62% of homebuyers ages 22-95 prioritized the quality of the neighborhood as a reason for purchasing a house and the primary reason for neighborhood choice. Location is so important that people are willing to give up “must-have” features to buy into their desired neighborhood — 72% would forget about a pool, 55% would lose a finished basement, and 33% would accept less square footage. What matters is living in a safe place with good schools. According to Trulia, 69% would drive through the neighborhood during different times of day to determine if the neighborhood was the right fit. You can’t go shopping for a home without choosing a location where you’d like to live. The most significant decision when buying a home is probably where it is. Location influences your everyday life. Your property does not exist in a bubble; it’s part of a more significant community. It’s essential to find a neighborhood or area that suits your needs. Do you want the peace of secluded woods or the energy of a bustling city center? Do research before starting your search. Drive through the area and see if all the stores, activities, and features you want are

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